Catch the Falling Mortgage Rate

A common misconception is that all mortgage rates drop when the Fed cuts interest rates. The truth is that the exact opposite may be the case. When you hear that the “Fed cut rates today” the reference here is the Federal Funds Rate, the overnight lending rate that the Fed uses with other banks. The stock market often gets excited about the lowering of this rate because short-term borrowing becomes cheaper, generally increasing economic activity for businesses. However, homeowners with 15 and 30-year fixed mortgages shouldn’t be so sure that a lower federal funds rate will equal a refinancing opportunity.

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Consider the Benefits of a Roth 401k

Not all corporate employees realize that Roth 401k deferrals have been allowed since January 1st of 2006. The Roth 401k, like a Roth IRA, allows accounts to grow tax-free and allows for tax-free withdrawal of contributions, earnings, and interest. Funds are eligible for withdrawal at age 59 1/2 assuming you’ve held the account for at least 5 years. The ‘drawback’ is that you can’t take a tax deduction at the time of deferral the way you can with a traditional 401k. Many financial advisors feel that Roth plans, if you qualify for them, are more valuable than traditional plans. Technically, it depends on a few different factors including your current tax bracket, your retirement tax bracket, and which direction marginal tax rates are headed for in the future.

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The Mortgage Contingency Clause

The Real Deal posted a front page article earlier this month on the growing popularity of mortgage contingency clauses found within buyers’ purchase contracts. For those who aren’t familiar, this is a provision in the purchase contract in which the buyer is only obligated to the sale if he/she is able to get a mortgage. Put another way, the buyer doesn’t risk losing their deposit–often 10% or more–if factors affecting the credit markets force them out of a deal.

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